- Summons Finance Minister, CBN Gov
- Flexible exchange rate policy will stabilise Naira – Financial houses
Due to fear of imminent economic recession occasioned by the present state of the nation’s economy, indications arose yesterday that the Senate may tinker with the just approved 2016 Budget, even as the legislature summoned Minister of Finance, Mrs. Kemi Adeosun, and Governor of the Central Bank of Nigeria, CBN, Mr. Godwin Emefiele, to brief it on Monetary and Fiscal Policies, MFP, being adopted by them to salvage the situation.
Against the backdrop of indicators thrown up at Tuesday’s Monetary Policy Committee, MPC, meeting, stakeholders in the industry have declared that the new flexible exchange rate policy would stabilise the naira.
The upper legislative chamber was worried that economic policies of President Muhammadu Buhari within the last one year were not achieving desired impacts and stressed the need for an urgent review, to avoid further plunge of the economy into full blown recession.
Specifically, the Senate observed decline in crude oil production from the 2016 Budget benchmark of 2.2 million barrels per day to 8,000b/d, and feared that meeting key budgetary revenue projections in the budget was “practically impossible.”
To this end, the Senate stressed the need to have a rethink, so as to avoid deepening budget deficit in the 2016 fiscal year or poor budget implementation.
The resolution, which was sequel to a motion moved by Senator Bassey Albert Akpan (PDP Akwa Ibom North-East) on ‘an urgent need to address the present economic state of the nation,’ was also based on last week report of the National Bureau of Statistics, NBS.
The NBS had in its score card for the first quarter (January-March) of 2016 for gross domestic product, GDP, painted a gloomy picture of rising inflation and unemployment as prelude to total economic recession.
The Senate observed from the report a decline of 0.36 percent, which is a drastic drop from 2.11 percent in Q4 2015 in GDP; increased unemployment rate to 12.1 percent in Q1 2016 from 10.4 percent in Q4 2015.
The report further disclosed that Underemployment also increased to 19.1 percent from 18.7 percent in the same period while the rate of inflation rose from 9.6 percent in January 2016 to 13.8 percent in April 2016, with attendant increase in prices of basic food commodities and services in the country.
Accordingly, the Senate in the motion said it felt deeply concerned that the continued complacency of the current state of the economy, if allowed unchecked, would set the tone for a full blown economic recession by the end of June this year, as already confirmed by CBN in its Monetary Policy Committee, MPC, meeting of Tuesday this week.
It added that the current economic contraction was the first major drastic slump since June 2004 which, according to the CBN, is a 12-year-low, but the World Bank’s position is a 21-year-low.
Senator Akpan further lamented that the declining oil production in the Niger Delta to the tune of 800,000 barrel per day against the backdrop of projected 2.2 million barrel per day as a result of vandalisation of oil pipelines, coupled with the incapacity of Federal Inland Revenue Service, FIRS, and Nigeria Customs Service, NCS ,to meet their revenue targets as a result of cash crunch, would further worsen the situation.
While noting that naira had now been completely devalued in accordance with the newly announced forex flexibility by the CBN while the exchange rate approved in the medium term and expenditure framework, MTEF 2016-2018 remained N197 to $1, he said the fate of ordinary Nigerians on the streets remained uncertain.
However, Senate President Bukola Saraki, who presided when the motion was moved, did not allow it to be debated but simply called on Senator Abiodun Olujimi (PDP Ekiti South) to second the motion.
In seconding the motion, Olujimi regretted that there was no visible economic policy in Nigeria which according to her, is making government not to have clear cut economic direction for now.
She said for the nation to get a clear economic direction, there must be a workable blue print to that effect.
Olujimi was, however, cut short by Saraki who put the question for invitation of both the Finance Minister and CBN governor to voice votes by the senators, which majority of them voted in fovour of.
‘Flexible exchange rate will stabilise naira’
Financial houses on Wednesday lauded the flexible exchange rate policy adopted by the CBN, saying it would boost forex liquidity and stabilise the naira.
MPC in its 107th meeting on Tuesday voted to adopt a flexible foreign exchange policy.
It also retained Monetary Policy Rate, MPR, at 12 percent, Cash Reserve Ratio, CRR, at 22.5 percent, and liquidity ratio at 30 percent.
Head of Research, Vetival Capital Management Ltd, Mr Pebina Yinkere was quoted as saying that the policy would curb profiteering in the system.
Yinkere also said that the policy would improve foreign exchange liquidity in the system.
“Overall, we view this development as positive for Nigeria,” Yinkere added.
Also, Cowry Asset Management Ltd. said the policy would impact on the economy in several ways. It said it expected the current inflationary pressure to continue unrestrained as budgetary disbursement commences.
According to the firm, interest rate is expected to continue to hover at current levels with an increased double digit outlook.
“This is likely to increase in liquidity mop-up through Open Market Operations (OMO) in response to expected increase in budgetary spending.
“The Naira might remain under pressure as market forces adjust to a more realistic parallel market rate.
“The decision would likely attract foreign exchange inflows estimated at 20 billion dollars from domiciliary accounts as currency exchange risk minimises,” it said, adding that capital market activities would witness gradual recovery as foreign exchange risk diminishes.